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Sign of the times: LocalBitcoins removes in-person cash payments

Posted: 3 June 2019 3:29 pm News

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Crime is caused by a lack of money. You can't fight crime by making money more expensive and harder to use.


Key points
  • LocalBitcoins has removed cash in person as a payment method
  • Users are already devising ways to get around it, and exploring alternatives
  • The change raises questions around how anti-money laundering regulations should best approach the emerging cryptocurrency field.

LocalBitcoins has had a brief but eventful history. It's one of the world's foremost peer-to-peer exchanges and is widely regarded as one of the best indicators of Bitcoin interest in countries without much in the way of formal and regulated cryptocurrency exchange infrastructure.

A platform where people can directly and mostly securely trade crypto with each other, with the help of escrow smart contracts, presents a safer way of trading local currency for crypto than just using messaging apps.

That's why LocalBitcoins' removal of cash in person as a payment option is so notable, and why it may herald a wider attempted crackdown on anonymous Bitcoin purchases.

Opinion: What? Are we banning money now?

When you post or look for an order on LocalBitcoins, you can choose from a wide range of payment options. Until very recently, cash in person was one of them. Now cash is still there, but only in the form of cash deposits at banks.

But traders were quick to find ways around that, which in many cases just takes the form of a note on the profile saying something like "text this number for a cash in person Bitcoin trade."

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So what's next? You can start making and enforcing rules around what exactly people can say on their trading profiles or banning users who cross the line, but then you're just entering the world of underground slang. The end result is visible in China, where behind the great firewall, Bitcoin trading continues in coded language on messaging apps.

And LocalBitcoins isn't the only peer-to-peer crypto platform. LocalEthereum, which does what it says on the tin, temporarily dropped its fees for in-person cash trades to 0% in direct response to LocalBitcoins scrapping cash payments. Elsewhere, platforms like Paxful still facilitate cash payments. According to Paxful's terms and conditions, identity verification is only required once accounts have traded US$1,500 equivalent.

It doesn't help that Bitcoin and cryptocurrency is perfectly legal. At the end of the day, those platforms are just matchmakers. The actual behaviour that needs to be prevented, according to the regulatory mood of the room, is one person transmitting cryptocurrency to the other without checking their identity.

You could infiltrate platforms and set up stings, as has already happened on LocalBitcoins, but on the whole it's going to be a high-cost low-impact way of keeping the industry clean, and unless there's a drug dealer somewhere down the line, you'll just end up getting people on wimpy charges like running an unlicensed money transmitter business. There's a fine line between sensibly enforcing laws and punitively making examples of people.

And what about random donations?Picture not described

Does this street artist need to return people's donations if the donor's ID cannot be verified? Do donors need to keep a receipt that documents the value of the enjoyment they got from viewing the artwork and the approximate value of the enjoyment?

How about crypto tips? There's no indication that the Tippr bot has appropriately verified the identities of everyone that's ever called it, and there's a very real possibility that international criminal syndicates are now laundering money via social media hot takes.

If you're holding some Bitcoin that can be traced back to a mixer, and you think it might have at some point been involved in some kind of crime, are you obligated to hand it over to authorities while they investigate its provenance? And what would happen if the world actually experienced mass crypto adoption in a peer-to-peer economy? Would everyone have to register as a money transmitter and do their due diligence on transactions? If so, who would be checking their work?

Looking down the road

A worrying trend is visible when you look down the road at the goal of preventing all money laundering. You can ban cash transactions, force wallet providers to identify users and hold developers responsible for the misuse of their dapps, but every one of these incremental steps opens up new loopholes, and then those loopholes need to be filled, and so on. If you follow that thread all the way to the end, it inevitably leads to a complete cryptocurrency ban and totalitarianism because there will always be just one more loophole that needs closing.

The end of that road probably isn't a nice place.

Warnings of totalitarianism are a dime a dozen and have been for a long time now, but advent of the Internet age and the rise of digital currency gives them a new sense of urgency. If we're not careful, "anti-money laundering" could be the Trojan horse that carries in the foundation of a surveillance state.

The challenge is to know when to stop walking down the road to prevention of all money laundering, and to realise that the negatives are starting to outweigh the positives. That time has either come right up or it has already passed us by.

We've already put personal privacy on the chopping block for the sake of fighting terrorism and have sacrificed real cybersecurity for additional AML security theatre. The number of AML compliance specialists in financial services has more than tripled in the last few years, and there is less than nothing to show for it.

The best way to prevent money laundering is by promoting financial inclusion. By preventing people from needing to launder money in the first place, you can really start bringing the numbers down. Crypto can help on that front, in part because it's not burdened by the full gamut of compliance costs and because it's usable peer to peer without any identification or bank accounts required.

The same principle applies where people turn to Bitcoin in the absence of a stable local currency.

Crime is caused by a lack of money. You can't fight crime by fighting money.


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Disclosure: The author holds BTC, BNB, ATOM and IOTA at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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